I speculated there on the challenges and risks for charities in becoming early adopters of a new (and still highly volatile) payment mechanism, and highlighted the fact that almost all the available methods of donating Bitcoins to charity currently impose limits on donor choice. However, having watched this topic continue to increase in public profile since then (although not all of the profile has been positive, obviously), I thought it would be a good time to ponder a few more specific opportunities and challenges that cryptocurrencies might raise for charities and philanthropists.

(Just a note on terminology here: I’m aware that Bitcoin isn’t the only cryptocurrency, and everything I say applies equally well to other cryptocurrencies, but I might slip into using “Bitcoin” as a catch-all term because it’s neater. And because I’m lazy)

Obviously this list isn’t exhaustive, but these are the main points that have interested me so far:

1 COST-FREE GIVING (MINING FOR CHARITY)

I came across a story the other day about an organisation called Do a Bit of Good, which aims to harness the computer processing power of philanthropically–minded cryptocurrency users to generate funds for charity. Participants in the initiative download a screensaver that acts a currency mining programme (don’t worry about the detail if this sounds confusing −mining is just how new crypto-currency coins get “made”), and the program then donates the coins to the user’s charity of choice.

Do a Bit of Good has partnered with GiveCoin, which is a new cryptocurrency designed specifically for charitable giving. The GiveCoin Foundation has donated 200,000 GiveCoins to the project.

I have to admit that this is where I don’t quite understand the story: what is the point of a currency specifically for charitable giving? Unless that currency can be exchanged for a more general one (i.e. either Bitcoin or actual, real world money) in order to purchase goods and services, I don’t see how it is of any use. Of course, you can have workable special-purpose currencies (for instance the old-fashioned system of using matches as a form of currency within a babysitting circle), but as far as I can see they only work within a closed loop where the people using the currency are also providing a given service or good and benefitting from it themselves. But since GiveCoin is an entirely new currency (and small, even by crypto-currency standards), what can a charity actually use donated GiveCoins for if they cannot be exchanged for something else?

Despite my confusion on this point, the principle of using crypto-currency mining as a form of cost-free giving still seems sound. Of course, as with any form of “cost-free” giving it isn’t really cost-free: what you are actually donating in this instance is the opportunity cost of not using that processing time to generate Bitcoins for yourself. But since it is feasible to imagine that people would be willing to use more of their own processing power for mining if it will benefit charities than they would if it only benefitted them personally, this could be genuinely additional funding for good causes.

2 EASIER CROSS-BORDER GIVING (NO FX OR TRANSFER PROBLEMS)

One of the major potential benefits of Bitcoins for charities that many people have identified is how much easier they could make cross-border donations.

Since Bitcoin is a decentralised peer-to-peer (P2P) currency it is truly non-geographic and operates the same in all countries. This means that there are no exchange rate issues and no international transfer fees. This could be a great boon for charities operating in difficult locations, as it would enable them to receive donations more securely. It could also benefit donors, who would be able to give to projects in other countries more cost-effectively and with a greater degree of confidence (particularly where the donation is going to a country where corruption is an issue).

The P2P nature of Bitcoin also lends itself to direct donations to individuals. Given the increasing prominence of initiatives like www.givedirectly.org, which allows US donors to give donations direct to individuals in Kenya and Uganda using the power of mobile phone payment technology, this might well be a major growth area in the future.

3 TRACKING DONATIONS

Another potentially very interesting possibility that stems from the nature of cryptocurrencies is far more radical transparency on how donations are spent. Because all Bitcoins and their ilk are unique, and every Bitcoin transaction is recorded in a public ledger (the “blockchain”), it should be possible for donors to follow the exact progress of their donation through a charity and see how it is spent (assuming that in the future, charities are able to spend Bitcoins rather than simply exchanging them for hard currency).

Whilst this could be a powerful tool in ensuring donor confidence (and again, would be particularly useful for organisations working in areas where concerns about corruption are disincentive for donors) it raises an interesting question about the extent to which transparency is actually a good thing. Given that there is already a problem with charities struggling to convince donors that it is right and proper that some of their donation is used to cover the core costs of the organisation (and many larger donors specifically restrict their gifts to particular projects), what is going to happen if people see that their particular Bitcoin donation ended up being spent on marketing or fundraising, rather than “getting to the frontline”?

Of course charities shouldn’t lie to their donors about how money is spent, and most organisations are already making great efforts to be as efficient and effective as possible, and to communicate that to their supporters. However, enabling individuals to see precisely where their own particular donation goes would take things to a whole new level, and not (to my mind) necessarily in an entirely good way. There is almost certainly a middle ground, though, where Bitcoins can be used to enable far greater transparency and drive donor confidence without stifling charities’ ability to operate.

4 NEW FORTUNES MADE VERY QUICKLY: PHILANTHROPY IMPLICATIONS

The other thing that occurs to me about cryptocurrencies, which doesn’t really have anything to do with their specific nature, is that they are another example of a huge growth area in which very large fortunes can be made in a very short space of time (just like the Gold Rush, the dotcom boom etc .) That means there will be people who go from not having much money to having more than they ever imagined, and little time to think through what to do with it. That should be fertile ground for philanthropy. Of course, as in other areas, not everyone will respond positively, and there will be the usual amount of greed and opulence, but there is certainly a good opportunity to try to instil a philanthropic mindset in these new cryptocurrency millionaires from the outset.

Even better than targeting people once they have made their fortune would be to take the sort of approach that you see in Silicon Valley among tech entrepreneurs, where many of them make philanthropic commitments before they make it big, and even build this into the structure of their companies in some cases (like the Salesforce.com 1/1/1 model). As has been pointed out in the past, it is a lot easier to get people to agree to give away a percentage of their fortune when it is hypothetical than it is once they have the money in the bank.

Anyway, those are my thoughts for now. If anyone else has any musings or insights on how charities can make the most of the opportunities afforded by cryptocurrencies, or how they can address some of the challenges, please do let me know!

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